Recent orders
Racism culture in the United States of America has lasted since colonial times.
DiscussionRacism culture in the United States of America has lasted since colonial times. This involved laws and actions that discriminated certain groups based on their race and negatively impacted their daily lives. This moral code became diffuse in the United States with time, such as discrimination against black Americans. They were denied equal privileges such as restrictions on economic, social, and political freedoms. The Native Americans faced segregation from the whites and were forced into slavery and kept in reserves, which is morally unacceptable. Slavery became a norm to the fact that it was supported by Christianity and resulted in poverty among the discriminated groups as they were denied equal access to resources and forced into slavery. The war between the native Americans and the whites was also a result of this unequal treatment as they tried to fight for their freedom, which led to disorganization in the society due to lack of peace. The problem of this culture was solved according to Durkheim as racial discrimination was banned in the 20th century and declared morally and socially unacceptable. When America was served by the first black president in 2009 to indicate America was into a new post-racial era, it was evident enough.
THE IMPACT OF THE FLEXIBILITY AND REPORTING NON-RECURRING ITEMS UNDER IAS 1 UPON FIRMS AND INVESTORS BEHAVIOUR
RESEARCH PROPOSAL
THE IMPACT OF THE FLEXIBILITY AND REPORTING NON-RECURRING ITEMS UNDER IAS 1 UPON FIRMS’ AND INVESTORS’ BEHAVIOUR
Abstract
The thesis focusses on the use of pro forma earnings by many companies in their quarterly press releases in the belief that the disclosure provides a clear picture of companies’ main earnings. However, there are arguments by various groups including policymakers and regulators that the move tends to mislead investors because at times, management may be tempted to portray overly optimistic financial performance. In this case, disclosure of pro forma earnings greatly exposes less wealthy individual investors at risk and this research emphasizes on engagement of UK firms in earnings management and exploring classification shifting of core expenses to non-recurring items. The impact on increasing income, inclusion of abnormal working capital accruals as well as the need of meeting analysts forecast does not however relate as may be expected although huge firms tend to shift small core expenses to other non-recurring items to meet analysts’ expectations.
Introduction
Meeting analysts’ expectations by most companies is the key strategy of most management because of the consequences associated with it. The impact of the flexibility on reporting non-recurring items under IAS 1 upon firms and investors behaviour is undoubtedly immense and the act is practiced by many firms across UK (Bhattacharya et al., 2007). There are always unfortunate reactions to negative earnings and a market reward to positive earnings because of the ability to meet analysts’ expectations thus leading to actions such as inflating core earnings through classification shifting of core expenses to income increasing items (Yi, 2012).
However, when managers and analysts omit non-recurring items from core earnings, companies may decide to get involved in classification shifting of recurring losses or expenses as a way of meeting analysts’ expectation (Aubert & Grudnitski, 2012). Initially, classification shifting was empowered by FRS 3 between 1993 until the adoption of IFRS in 2005 (Athanasakou, Strong & Walker, 2009; Gori & Fissi, 2013). The adoption of 2005 IFRS enabled firms to report net income per share; nevertheless, they were supposed to differentiate between core and transitory earnings through exercise of decision in categorizing non-recurrent items. IAS 1 Presentation of Financial Statements in line with FRS 3’s provides a good peculiarity core and exceptional income components thus enabling companies to consider material items distinctly in the income statement (Bhattacharya et al., 2007; Hollie & Yu, 2012). It is worth understanding that quality of earnings improved post-FRS 3 and most firms do not use discretionary accounting choices as a way of satisfying analysts’ expectations as it used to be and there is a general concern over the potential manipulation of non-recurring items (Porter & Miles, 2013; Cameron & Gallery, 2012).
Literature Review
By analysing the impact of the flexibility and reporting non-recurring items under IAS 1 upon firms and investors’ behaviour, there are several issues that are examined such as whether UK investors trade on earnings before non-recurring and why companies voluntarily disclose earnings before non-recurring items (Yi, 2012). Adoption of FRS 3 might appear as if it has made issues clear in terms of disclosure of material items in the income statement but it is still worth proving if firms using non-recurring items. This article examines the application accruals management, classification shifting and earnings forecast in order to meet analyst expectations and logistic analysis is analysis the association of income-increasing, discretionary accruals and downward-guided forecasts (Porter & Miles, 2013). The research examines whether UK managers shift core expenses to non-recurring items to meet analyst expectations where total non-recurring items are decomposed into non-operating exceptional items and other non-recurring items.
Research Questions
Recent studies indicate that pro forma earnings information may mislead investors because expenses excluded from analysts’ street earnings tend to affect future cash flows. The study aims at answering the following research questions;
Whether investors usually understand the exclusions and perhaps the implications of excluding the expenses and the fact that investors misprice management issued pro forma numbers (Aubert & Grudnitski, 2012; Athanasakou, Strong & Walker, 2009).
Finding out who trades on pro forma earnings information and the extent in which the more and less sophisticated investors trade incrementally.
To examined whether UK investors trade on earnings before non-recurring items and why companies voluntarily discloses earnings before non-recurring items as well as whether companies use non-recurring items to mislead investors (Bhattacharya et al., 2007).
The research will further shed light on the mechanisms UK companies use to meet analysts’ expectations including focussing on the downward-guided forecasts’ effects on the probability of meeting analysts’ expectations. It also gathers evidence that is consistent with classification shifting of other non-recurring items to hit analyst earnings forecasts and if the UK firms are likely to engage in earnings forecasts guidance for a subset of larger firms. Moreover, the investors who are always at risk are the ordinary ones because they lack proper information that can help them in making decision. The main reason for carrying out the research is to understand the impact of reporting non-recurring earnings and the eventual effect it has on both investors and the firms including the investors’ behaviour towards investment. Amid the introduction of FRS 3, there have been several challenges that encompass most firms in UK when it comes to reporting of the non-recurring earnings and this is what the study intends to focus on.
Methodology
Goal of the study is to examine whether UK firms usually engage in accruals, classification shifting and examination of earnings or expectations management to meet analyst expectations that requires testing of the association between probability of hitting the target and earnings. There will be estimation of abnormal accruals, misclassified non-recurring items as well as downward guided analysts’ forecasts while for non-recurring items, it may be difficult to estimate the part resulting from intentional misclassifications because of uncertainty (Barth, Gow & Taylor, 2012). The actual methodologies that will be used in the research process from its time of inception to the end include the role of both the secondary and the primary data in the process of addressing the various research questions will be. Data will be collected from the managers, peer reviews and a few identifiable investors especially ordinary investors (Bhattacharya et al., 2007). This will be done with an in-depth reflection of the research design and other related ethical issues and on choosing the best design, different aspects will be considered like the availability of resources in terms of finances and time.
An evaluative case study approach will be done for in this research as well as qualitative approaches to descriptive and non-experimental research methods for a more accurate result. Questionnaires designed and used to collect data on different personal views will apply and they will be given to managers who will respond to their views on reporting non-recurring items under IAS 1 upon firms and investors’ behavior. This research will incorporate phenomenology in carrying out the study because it is best suited for the proposed study since it corresponds with the study question (Barth, Gow & Taylor, 2012). The study will try to find out the main underlying reasons for reporting non-recurring items and emphasize on the intentionality of perception in situations where experiences have both inward and outward. The study will involve participants such as the managers and experts within the financial sector as well as investors who are likely to be affected by management decisions.
PR Newswire and Business Wire on LexisNexis will be researched to gather sample of pro forma press releases where a typical pro forma press release will contain the GAAP earnings per share figure. There will also be a pro forma earnings number for an adjusted GAAP earnings measure voluntarily disclosed by managers for the current year as well as other relevant information that may help in completing the research (Crawford & Weirich, 2011). There are also earnings announcements where the company discloses a pro forma that is different from the diluted EPS that are released in the same press (Bhattacharya et al., 2007). Firms’ quarter observations that can make data available will be searched from some other intraday transactions data will be obtained from all trades and quotes from the NYSE, AMEX and NASDAQ especially those trades with a condition code of regular sale. Opening trade will be excluded because it can add challenge to the measures put in place but trade with regular sales are included they result from continuous two-sided auctions (Athanasakou, Strong & Walker, 2009). There will be collection of adjusted-GAAP diluted earnings per share numbers disclosed by managers in their earnings press release and benchmark investor reactions with diluted earnings per share from operations.
Importance of the Study
This study is very significant because regulators and standard setters’ opinions are very important, as far as investment is concerned. The research indicates that manager’s pro forma disclosures are incomplete, inaccurate, and misleading investors and that more versus less sophisticated investors may respond differently to these nonstandard. The research will show how less wealthy and less sophisticated individual investors are affected by the management information; something that may impose a great risks to the investors in general (Johnson, Lopez & Sanchez, 2011). Pro forma earnings greatly informs the investors especially the sophisticated investors who reject trading around pro forma earnings announcements even though they do not welcome the trade that is based on manager disclosed pro forma earnings information (Christensen, 2012).
Most investments are evaluated in terms of return expectations, which are geared towards achieving long-term goals that have always been susceptible. The management information may serve the major function of risk and investments evaluation amongst ordinary investors who are susceptible (Bhattacharya et al., 2007; Enahoro & Jayeoba, 2013). Management information on pro forma earnings may help in establishing the relative long-term stability of risk rather than the associated returns and provide unique insights with practical applications for more maximizing returns and less risk.
The study will further shed light on the mechanisms UK firms apply in meeting expectations and provide examination of earnings forecast guidance and two earnings management mechanisms (Aubert & Grudnitski, 2012). The research will also help in understanding the market and even help investors know what to expect as a certain degree of earnings or expectations from the firms’ managers. Moreover, the significance of the research is the fact that it provides an idea regarding how UK firms guide analysts forecast down or perhaps engages in classification shifting (Frankel, Mcvay & Soliman, 2011). The main aim of managers is to make sure the target is attainable although and even enable investors understand the market rewards. Understanding accounting standards based on earnings management and the outcome of the UK regulatory bodies in the early 1990s. The research may provide a good guidance regarding earnings forecast and provide an avenue for further research in the area of study (Athanasakou, Strong & Walker, 2009; Eccles, Holt & Zatolokina, 2011). The study will provide important knowledge deemed vital in understanding the influence of the flexibility and reporting non-recurring items under IAS 1 upon firms and investors’ behavior. The way in which the issue raises auditor’s suspicion will be keenly looked at in order to shed light on the dangers of the management’s decisions when it comes to pro forma.
Conclusion
It is apparent that less sophisticated investors’ abnormal net buying activities but only affects the ordinary investors who are exposed to higher risk because of their full dependence on the information (Ben-Shahar, Sulganik & Tsang, 2011). Disclosures by the management may at times be misleading because there are expenses and other material items left behind (Aubert & Grudnitski, 2012). Regulators and other standard setters should therefore come out clearly to defend the ordinary investors who are less informed concerning activities taking place. Rigorous transparent requirements should be employed to make sure those investors or firms do not negative impact that may be associated with the management’s decisions. The regulatory framework applied in reporting financial performance and the mechanisms firms utilize should focus on improving general quality of earnings.
References
Athanasakou, Vasiliki, Strong, Norman and Walker, Martin. 2009. Earnings management or forecast guidance to meet analyst expectations? Accounting and Business Research, 39.1. 3-35.
Aubert, F. & Grudnitski, G. 2012, “Analysts’ estimates”, Review of Accounting & Finance, vol. 11, no. 1, pp. 53-72.
Barth, M. E., Gow, I. D., & Taylor, D., J 2012. Why do pro forma and street earnings not reflect changes in GAAP? evidence from SFAS 123R. Review of Accounting Studies, 17(3), 526-562. doi:http://dx.doi.org/10.1007/s11142-012-9192-9
Ben-Shahar, D., Sulganik, E. & Tsang, D. 2011, “Funds from Operations versus Net Income: Examining the Dividend Relevance of REIT Performance Measures”, The Journal of Real Estate Research, vol. 33, no. 3, pp. 415-441.
Bhattacharya, Nilabhra, Black, Ervin, Christensen, Theodore and Mergenthaler, Richard. 2007. Who Trades on Pro Forma Earnings Information? The Accounting Review, 82.3. 581-619.
Cameron, R. & Gallery, N. 2012, “Were regulatory changes in reporting “abnormal items” justified?”, Journal of Accounting & Organizational Change, vol. 8, no. 2, pp. 160-185.
Christensen, T.E., 2012. Discussion of “Why do pro forma and street earnings not reflect changes in GAAP? Evidence from SFAS 123R”. Review of Accounting Studies, 17(3), pp. 563-571.
Crawford, R.L. & Weirich, T.R. 2011, “Fraud guidance for corporate counsel reviewing financial statements and reports”, Journal of Financial Crime, vol. 18, no. 4, pp. 347-360.
Eccles, T., Holt, A. & Zatolokina, A. 2011, “Commercial service charge management: benchmarking best practice”, Journal of Corporate Real Estate, vol. 13, no. 4, pp. 200-215.
Enahoro, J.A. & Jayeoba, J., 2013. Value Measurement and Disclosures in Fair Value Accounting. Asian Economic and Financial Review, 3(9), pp. 1170.
Frankel, R., Mcvay, S. and Soliman, M., 2011. Non-GAAP earnings and board independence. Review of Accounting Studies, 16(4), pp. 719-744.
Gori, E. & Fissi, S. 2013, “From Cash to Accrual Accounting: A Model to Evaluate the Performance of Public Museums”, Revista de Management Comparat International, vol. 14, no. 4, pp. 519-541.
Hollie, D. & Yu, S.C. 2012, “Do Reconciliations Of Segment Earnings Affect Stock Prices?”, Journal of Applied Business Research, vol. 28, no. 5, pp. 1085-1106.
Johnson, P.M., Lopez, T.J. & Sanchez, J.M. 2011, “Special Items: A Descriptive Analysis”, Accounting Horizons, vol. 25, no. 3, pp. 511-536.
Porter, T. & Miles, P. 2013, “CSR Longevity: Evidence from Long-Term Practices in Large Corporations”, Corporate Reputation Review, vol. 16, no. 4, pp. 313-340.
Yi, H. 2012, “Has Regulation G Improved the Information Quality of Non-GAAP Earnings Disclosures?”, Seoul Journal of Business, vol. 18, no. 2, pp. 95-145.
Dealing with Sprawl in the United States
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Dealing with Sprawl in the United States
Urban sprawl refers to the growth and spread of city or its suburbs. It mostly involves development of commercial and residential structures into rural areas as well as in undeveloped outskirts. People commuting to job in the city and residing in single-family homes characterize the urban sprawl. Urban sprawl has had both positive and negative impacts. Some concerns argue that urban sprawl is a sign of upward growth of local economy while see it as impacting negatively on local environment and residents. Urban sprawl can also be defined as the settlement of low density either residential or commercial that is outside the borders of an urban centre of high density. Most American people opt to live in suburbs and work in the city since they are attracted by better public service, open space and upscale houses. The continuous growth in suburbs has influenced the emergence of large metropolitan areas which are cumbersome to manage. In United States housing for suburban expansion is often purchased from ranchers and farmer (Gonzalez, 57). Between 1970 and 1990, more than 20% of the people in the United States cities moved away from urban centers to the outskirts and suburbs. During this time, in Chicago for example, urban population reduced by at least 0.6 million people. The metropolitan population grew by almost the same number. Poor planned development of population of a city is the main cause of urban sprawl.
Growth and development of urban sprawl has symptoms such as strip malls, fast food chains, shopping malls and subdivisions of homesteads. Housing subdivisions refer to big pieces of land made entirely of newly raised residential and commercial buildings. These subdivisions are served by curved roads and paths. Few places for entry and exit characterize these developments hence high numbers of collector points for traffic are required. Fast food chains are more often established in less denser areas where population and traffic is expected to rise. Fast foods increase rate of urban sprawl especially with their plastic structural design, liberal parking lots and flamboyant signs. People eventually create more spread settlement as they move away from existing sprawls. Shopping malls are also common in areas facing sprawl. This is usually made of one building with multiple shops surrounded by large parking space. Shopping malls are aimed at recreational shopping with good infrastructure such as access to highway. Ontario government promoted building of several downtown malls in the 1970s. This was intended to reverse the migration of businesses to the outskirts of the city (Soule, 132). Strip malls refer to separate buildings sharing a common parking space usually networked by well built roads. Strip mall has a variety of functions to gather for daily use such as laundry and financial services. Low density, ample parking space, single-storey buildings and access to delivery vehicles characterize these developments.
Suburbanization has over time become prevalent not only in developed countries but also in developed nations. There are several factors attributed to unrelenting urban sprawl in the United States and other parts of the world in general. These are; lack of proper planning, high population growth rates, consumer preferences and subsidization of infrastructure. According to planners, lack of adequate planning is the main cause of urban sprawling. Planning bodies in densely populated areas should consult the surrounding communities to avoid poorly effected plans in the outskirts of urban centers. The less populated areas normally incur new costs for improvement of infrastructure which would otherwise be bridged with the amenities of urban centers. Regional planning would allow for execution of proper plans to foster community cohesiveness. Rapid growth of population has largely contributed to urban sprawl in the Southern and Western parts of the United States of America (Gonzalez, 68). The high rate of population increase exceeds the capacity of cities prompting the formation of new communities. An increase in population of newly created communities will cause further spread which extends farther and farther from the centers of the cities.
Most people in the United States of America prefer a serine environment away from the city. Their desire for bigger yards, larger homes and more rooms results in urban sprawl. This bigger space is often not available or affordable in the cities which are crowded. Infrastructures in the United States of America such as roads have been subsidized allowing easy access to the outskirts and suburban. Such infrastructures entice people to live in the surrounding of an urban centre and still access the city with ease. New York City had commuter services through railroad by 1832. Railroads promoted growth of suburbs since only well off citizens could afford to pay rail fare. Omnibuses pulled by horses were also introduced. Omnibuses were able to pick and drop passengers in large numbers at designated depots. The Industrial Revolution in the United States experienced between 1830 and 1880 influenced the growth of suburbs (Richardson & Chang-Hee, 96). The industries located near cities and drew workforce from rural areas resulting in congestion. It was due to congestion that most people moved to suburbs.
Suburbanization has had negative effects on both the economy as well as health of the people. The aim of many American citizens has been to escape chaos in town by moving to suburbs. Companies desire to build industries in less populated areas which are pleasant to their employees. Side effects such as excessive light and noise can affect residents who can resist set up of industries. Separation of industries from the city causes the inflation in property between the two prompting landowners to sell their land. Urban sprawl eats into available open space. There will be no parks and playgrounds for children as people look for places to put up homes and set-up their business. Households in the suburbs consume more land than in the city centers. Continuous urban sprawl in the United States and suburbanization in Los Angeles has increased the cost of infrastructure (Richardson & Chang-Hee, 103). Sewer lines, roads and water lines cost the American government a lot of money. The government resources that would have been used to improve existing infrastructure go into paying of new necessities further away from city center. Prices of homes decrease as a result of suburbanization but people spend a lot on transport costs. In the United States resources are consumed because of the miles driven and lack of public transit. Property taxes in less densely populated suburb areas are lower hence the government gets less revenue.
Sprawl has several negative thus it is necessary to be controlled. This can be achieved through planning which considers high density living arrangement. Sprawling is characterized by parks and open fields. High density structures reduce open places and keep the buildings at close proximity. This closeness can allow use of other means of transport such as bikes as opposed to driving. Planners should clearly outline the minimum density required which affect to behavior of development. Formulation of land policies that curb urban sprawl is also crucial. This can include designing growth boundary to separate urban centre from rural areas. People are further discouraged by improving existing infrastructure in city as opposed to creating new amenities further away (Soule, 127). Policies restricting expansion of urban area also come handy in quest to control urban sprawl. Regional meetings for collectively giving plans to address land issues need to be held. Cities such as California have to write visionary document on how the city will grow. Engaging people through invitation of public views and debates can lead to significant changes in utilization of city’s land.
Suburbanization in the United States was mainly due to technological and social advancements. Income of the prospective residents and ethnic heritage greatly influenced the design and location of suburbs in the eighteenth and nineteenth centuries. People associated some health benefits with living in suburbs in the nineteenth century and this encouraged them to move to areas outside city centers. Urban sprawl is linked to quite a number of problems including air pollution, poverty in central city, traffic chaos and destruction of scenic areas. Leaders need to understand the extent, consequences and characteristics of urban sprawl. Measures such as proper planning and formulation of policies to curb urban sprawl should be put in place. To safeguard open space and scenic places in the city surrounding, dense building should be encouraged in the city surrounding.
References
Richardson, Harry W, and Chang-Hee C. Bae. Urban Sprawl in Western Europe and the United States. Aldershot: Ashgate, 2005. Print.
Soule, David C. Urban Sprawl: A Comprehensive Reference Guide. Westport, Conn: Greenwood Press, 2006. Print.
Gonzalez, George A. Urban Sprawl, Global Warming, and the Empire of Capital. Albany: State University of New York Press, 2009. Print.